Pimco: Action not talk is needed on fiscal deficits

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IT IS not good enough for indebted governments to talk about reducing the fiscal deficit, they must take action if they are to retain investors’ trust in their sovereign debt, Bill Gross, the manager of the world’s biggest mutual fund at Pacific Investment Management (Pimco) said yesterday.

“Action is required to maintain or regain trust in sovereign credits approaching the rocks. Just last week bank of England governor Mervyn King said that it would be difficult to cut spending quickly, but that there needs to be a clear plan for doing so. Not good enough, Mr King. Don’t care. Show investors the money, not vice-versa,” he wrote.

Gross also said that some nations’ sovereign debt may in the future be no better than corporate bonds. In the past, the yields on sovereign debt have been lower than on corporate credit because of the assumption that governments can self-finance.